Workers Compensation costs $70 billion per year, representing nearly 5% of employer payroll costs, according to the U.S. Department of Labor. All 50 states require that employers submit a "First Report of Injury" form. However, every state mandates its own reporting format, and the types of information required differ from state to state.
"The states have had a real problem warehousing all of the paper reports for Employer First Reports of Injury," says Don Schmidt, Manager of EDI Services for Crawford & Company in Atlanta. "There's a tremendous redundancy in time being spent inputting the information. For years, our offices have keyed it into our systems, printed the forms required for each state, mailed them to the state, and then the state re-keys all of the information, sometimes making errors requiring that the process be repeated at considerable expense."
Recognizing the potential for cost savings, in 1991 the IAIABC (International Association of Industrial Accident Boards and Commissions) hired staff to work full time on developing and implementing an "electronic reporting program" in all 50 states. The result, an industry-specific format for reporting of Workers Compensation claims, has been adopted by many states, and is being considered by others. The format specifies a consistent set of data elements that are organized as a "flat file" that can be transmitted electronically."
Industry observers anticipate that the second release by IAIABC, expected in November, 1996, will fully conform with a host of "electronic data interchange" (EDI) standards, commonly known as X12, that have been developed by the American National Standards Institute (ANSI). ANSI's "X12" industry committees are responsible for standardizing data for dozens of government transactions, as well as numerous commercial exchanges of information, such as invoices, purchase orders, and shipping reports.
The ANSI X12 "transaction set" pertaining to Employer's First Report of Injury is #148. Other transaction sets, such as #837 for medical bills and #270 / #271 for Proof of Workers Compensation coverage are relevant to the insurance industry.
There are several benefits to be achieved if all State insurance departments adopt the ANSI X12 #148 standard. Most importantly, adherence to a universal standard means that any organization having X12 "translation software" will be able to receive and send any type of X12 document, not limited to insurance documents.
Data transmission using X12 is considerably more efficient than sending "flat files." Flat files are of fixed length, regardless of the amount of information contained therein. If several records are sent to an insurer, TPA, or state, each corresponding to employees of one employer, certain data fields, such as employer name, are duplicated for each record. By comparison, the X12 standard's variable length format allows for non-duplication and "data compression." The ANSI format includes a trigger for "functional acknowledgment" to the sender, when files have been received. According to Don Schmidt of Crawford and Company, this represents a major improvement over the practice of transmitting flat files through the process of "dial, dump, and pray."
Hoping to achieve significant cost reductions, a number of states now mandate that all First Reports of Injury and subsequent reports be transmitted by EDI. The Texas Workers' Compensation Commission, in its Advisory 95-05, enacts requirements that administrative penalties be imposed after January 1, 1996, on filers of First /Reports of Injury that fail to submit them by EDI. Printed copies must be provided to the injured employee. Kentucky also has enacted a January 1, 1996 deadline. "Eighteen states are currently EDI-capable and are running pilot programs," according to Greg Smith, Vice President of Finance for Frank Gates Software Systems in Dublin, Ohio. Several other states are evaluating EDI as a sole means for submitting required Workers' Compensation information.
These developments can be expected to reduce the cost of Workers' Compensation. Says Schmidt "If you can start collecting the same information regardless of state, it will make it easier to comply with state time demands for reporting, eliminate costly re-keying by states that requires follow-up by employers to correct errors, and improve our quality control over the entire loss adjusting process."
Risk managers foresee that even greater savings will be achieved, through more timely reporting of employee injuries. According to Phil Renaud, Director of Insurance for The Limited, Inc., "We know that reducing the time it takes to submit injury reports will reduce the Workers' Compensation claims amount. We are implementing the Frank Gates Software 'Employer Connect' EDI system to reduce our reporting time to a day, versus a week with our previous 800-number telephone reporting system. In addition, our employees feel much better that their claims are being acted on with priority."
A study by the Kemper National Insurance Companies finds that, as the time it takes to report Workers' Compensation claims increases, so does the average cost. The average cost of injuries reported after more than 30 days from an injury's occurrence is 55% greater, with more than twice the rate of
litigation, than injuries reported within ten days.
Employers who install software at all locations to initiate the electronic input of all Workers' Compensation claims may reap additional benefits. Once the data required for the Employer's First Report of Injury and subsequent reports is maintained in a computer data base, in a format consistent from state to state, far more information will be available for claims and safety management than heretofore. Rather than being limited to just the information appearing on traditional monthly loss runs, risk managers will be able to access and analyze a broader scope of employee injury data. Moreover, as data exchange formats evolve toward universally-accepted standards, much additonal information from insurance carriers and TPAs, such as adjusters' notes, may become available through electronic loss runs, observes Wade Prince, Senior Systems Analyst at Crawford & Company.
To facilitate these efforts, desktop computer-based systems such as ESIS's "SafetyView" and WorkWell's WARE 2.0 recently have been developed. They offer an integrated safety management approach, combining traditional claims data with information from links to corporate HR databases and the new electronic information base resulting from EDI.
Allen Monroe, president of Financial Risk Consultants in Larkspur, California, can be reached by e-mail at email@example.com or (415) 927-8824.
Copyright ( 1995 RISK & INSURANCE. 747 Dresher Road, P.O. Box 980, Horsham, PA 19044-0980. Reproduced with permission of David Shadovitz, Editorial Director (215) 784-0910. Portions of the content herein first appeared in RISK & INSURANCE, in December, 1995.